Buffett-First Solar Deal Extremely Bullish For Solar Sector

by Clean Energy Intel

Nellis Solar Power Plant in the US. Source: Wikimedia Commons

The Solar Industry this week received significant support in the
purchase by Warren Buffett-controlled MidAmerican Energy Holdings of
First Solar's (FSLR)
$2bn Topaz Solar Farm in San Luis Obispo County, California. This is
a significant show of confidence in the industry from Mr Buffett.

Of course, we do not know exactly what Warren Buffett´s
utility holding company has paid for the solar project. However, the
deal is unquestionably significant in size and scope. What we do
know is the following -

The Topaz Solar Farm is a $2bn, 550 MW project

It is expected to supply the energy needs of 160,000
California homes

As such, it is one of the two largest solar projects in the
world

It is slated to be finished in 2015

First Solar will remain in place to construct, operate
and maintain the solar farm for MidAmerican

Once the project is operational, the electricity generated
will be purchased by Pacific Gas and Electric (PG&E) under a
25-year power purchase agreement (PPA)

Mr Buffett is therefore effectively purchasing the future
income stream which will accrue from the PPA with PG&E.

This infusion of capital is obviously good news for both
First Solar and the industry as a whole. Coincidentally, it comes a
matter of only two days following our
recommendation to buy First Solar. However, the deal has
a significance that goes beyond the usual sunshine effect that any
M&A activity in a sector usually has.

As is well known, one of the bullish factors facing the solar
industry has been the 24 GW pipeline in the US utility-scale sector.
However, in the post-Solyndra environment there have been concerns
that it may be difficult to finance such a large slate of projects -
and this has been particularly true following the end of the
DoE´s Loan Guarantee Program and given the coming expiry of
the 1603 Treasury Grant Program at year end.

Indeed, the Topaz project was specifically one of those to be
affected in the post-Solyndra environment, with First Solar
announcing on the 21st of October that their application
for a $1.9bn DoE loan guarantee for the project would not complete
the application process in time to beat the deadline before the
closure of the program. As we argued was also the case with SolarCity´s
deal with Bank of America, this latest Buffett-First Solar
deal shows that the private sector has the capacity to finance such
large-scale projects.

Moreover, this latest bullish news follows a series
of bullish factors that have led us to recommend long
solar positions again after having been flat for many months:

The latest data points to blistering demand in the US - more
detail here

Likewise, China and Asia are showing extremely strong demand
growth - see our article on this from last week here

The major Chinese players have drawn a halt to their
excessively aggressive capacity expansion plans - more
detail here.

Taken together, these factors should allow the supply-demand
imbalance currently facing the industry to be eroded as 2012
progresses. Since late November we
have been recommending specifically being long a basket
of Suntech Power (STP),
Yingli Green Energy (YGE)
and Trina Solar (TSL).
Those stocks are now up 14.6%, 14.2% and 10.4% respectively. Three
days ago, we also recommended
adding First Solar (FSLR)
to that basket. We continue to recommend remaining long all four
stocks for what should be a solid rally into 2012.

Disclosure:
I have no positions in the stocks discussed.

About the Author: Clean
Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com),
produced by a retired hedge fund strategist who also manages his own money
inside a clean energy investment fund.